Do I really need to create a budget for my small business each year?

When you started your business, you might have done a business plan with a 1/3/5 year projections. This pretty document immediately got bound and left on the shelf so you could say you did it. However when you actually started serving the public you realized that things didn’t happen in the real world the way they do on paper. Well, this is the case with budgeting as well. However the only way to control the finances in your business when things change is to readjust your budget to ensure you are still yielding the profitability you need to from the business.

Running a business is hard work and its not worth doing for free. By creating a budget, or more specifically an operating budget, you can help to make sure that your business is worth it to you. This will be difficult at first so start simple. Project revenue and revenue growth as best you can. Years of experience will improve this but for now you must start with something. Then list out your direct costs to produce this revenue. This would include hard costs of products sold and the associated labor to deliver them.

Now is the part that you should be able to nail down pretty well which the anticipated expense structure. This should be somewhat flat across the year unless you start taking on new employees and buildings and can be controlled by you as things change. While you may not be able to ‘force’ someone to buy something, you can stop yourself from buying something. If you don’t make that big sale you were hoping for, then don’t buy the shiny new toy you wanted, even if it will make your life a little easier. Wait until next month.

The key is to track all of your income and expenses against this budget as the year progresses so you can control your bottom line. When things change, change the budget. This is the only way to understand how to improve the financials of your business going forward.

Michael Giuffrida from Southington CT has been operating businesses since 1997. He is an experienced entrepreneur in business management, profitable growth, business valuation, mergers and acquisitions, and information technology managed services.